Restaurants are the current darlings of the shopping center developers. It was reported last year that Americans spent more money at bars and restaurants (a total of nearly $55 billion) than they did on groceries. In case you were wondering how big a deal that is, consider this: It was the first time in recorded history that that was the case. But that’s not the only reason that shopping center owners are mad for restaurants. They are also hubs of social activity that contribute to that all-important and often elusive experiential energy.
Restaurants are not just a good choice, they are sometimes the only choice. In some markets and for some projects, it seems as though viable restaurant tenants (along with a rapidly expanding selection of entertainment uses) are plentiful, while the supply of retailers is more and more limited. Turbulence and change in an evolving retail sector are obviously playing a role in this situation, too, with the industry going through a period of post-recessionary and omnichannel-driven reorganization.
In a retail marketplace in which it can feel as though the only constant is change, and where sure things now come with question marks, the leasing of centers is more challenging than ever. It is not uncommon for projects that may have planned to include about 25% restaurant tenants ultimately ending up with closer to 50% or more.
This is not necessarily a bad thing. In many ways, restaurants are the ideal tenants for improving the social and economic viability of a retail or mixed-use environment. But there are also some reasons for caution. With so many new concepts and so many new restaurants hitting an already crowded marketplace, concerns about oversaturation are always present. Restaurants are challenging to manage and operate, and they notoriously struggle to sustain consistent quality and service. Developers don’t want to look a gift horse in the mouth, but if can be unwise to bet the load on that one horse.
Here are just a few of the issues that wary brokers, developers, and landlords are keeping top-of-mind as they ride the restaurant wave to full lease-up:
Labor complications With larger numbers of restaurants comes a problem that has come into focus over the past 12-18 months: A lack of skilled cooks and qualified labor to fill kitchen positions. There are fewer prospective kitchen workers willing to work under highly demanding conditions for relatively modest pay – a problem that could be exacerbated by the immigration policies of the Trump administration. Something has to give. Salaries, and thereby prices, will most likely have to go up.
Stiff competition The influx of new restaurants means an increase in competition. Fine dining, family restaurants, fast-casual concepts, and traditional QSR brands are all jockeying for position along with grocery and specialty markets offering more prepared foods. Then there are the delivery and cook-at-home concepts being served up on the internet. In this crowded field, it pays to have a good feel for who is going to thrive and who is going to dive. Some of the most creative and inspired chef-driven restaurants ultimately do not make it. Real estate professionals would be wise to pay close attention to financials and prioritize proven staying power.
Strike a balance While national-credit restaurant tenants tend to be safer bets, taking some calculated risks is a critical component to creating a destination. A hot concept or a popular local or regional player can help differentiate a project and drive dollars and traffic. The key for center owners is to strike a balance between established names with familiar drawing power and smaller innovative local and regional independents that generally do a better job of connecting with the community and their customers.
Plan for flexibility The best mall and shopping center owners and developers will ensure that restaurant spaces and pads are designed to easily be repurposed or renovated for other uses. Strategizing for what could happen two, five, or 10 years down the road is the recipe for success in the food and beverage category.
Stephanie Skrbin is a Principal of Avison Young based in Los Angeles .She can be reached at [email protected].